Our mission

SIMPATIC represents a unique bottom-up project, bringing together, for the first time, a wide variety of top class micro- and macroeconomics researchers with expertise in evidence-based policy analysis, impact assessment, and the scope and nature of research and innovation policies. The objective of SIMPATIC is to provide policy makers with a comprehensive and operational tool box allowing for a better assessment of the impact of research and innovation policies in Europe, thus allowing European innovation policy makers to better address the EU2020 challenges.

Latest Developments

While the impact of increasing concentrations of greenhouse-gases in the atmosphere on the climate system cannot be accurately predicted, there is a non-trivial risk that beyond some ex-ante unknown tipping points – in terms of greenhouse-gas concentration and/or global temperature – irreversible and highly expensive events might unfold. This calls for quick action to reduce the probability that such tipping points will be passed2. Consequently, annual greenhouse gas emissions will have to be reduced dramatically before 2050. In order to stabilize CO2 concentrations at about 450 ppm3 by 2050, global emissions would have to decline by about 40-70% by 2050.

Such aggressive decarbonisation on a global scale will require an international agreement because otherwise fossil fuels not used in some countries will simply be used in other countries4. And we cannot wait until low-carbon technologies become cheaper than expiring fossil fuels because, in particular, the last percentage points of cost advantage that fossil fuels have will be difficult to overtake without a price on carbon5. But an agreement is only feasible and stable if the climatebenefit for each country exceeds the cost. The cost of decarbonisation essentially depend on the cost of low-carbon technologies. Consequently, reducing the cost of these technologies in Europe not only allows for cheaper domestic decarbonisation and for a competitive edge to be gained in selling these technologies overseas, but most importantly it would strongly facilitate an international agreement.
Without public intervention, European companies will under-invest in low-carbon innovation for three reasons: (i) in all sectors, innovators cannot reap the full benefits of their innovation because good ideas might be used to enhance productivity beyond the product made by the original inventor (e.g. by inspiring new innovation or being merely copied by competitors). No company will invest in a project for which the expected return is below the upfront investment, even if the societal benefits exceed the initial investment cost. (ii) The European carbon price is likely to be below the social cost of carbon and there is no sufficient long-term visibility of the carbon price-signal. As companies will
only invest in technologies that mitigate CO2 emissions at a cost below the carbon price, investments in technologies with higher abatement cost (e.g. carbon capture and storage) are not brought forward, even though they might be needed to mitigate climate change. (iii) Low-carbon technologies are most competitive in markets where greenhouse-gas emissions are regulated.

Hence, even though emissions outside the EU are as bad for the planet as emissions within the EU, companies invest at less than socially-optimal levels in developing low-carbon technologies, because they do not receive extra remuneration for the ability of their technology to reduce emissions in markets that do not regulate emissions.

The policy question hence is: how can the EU overcome in the most efficient way these market failures that hold back low-carbon innovation. We first provide some evidence that companies that do ‘green innovation’ appear not to be different from other innovators. Then we discuss what public policies are used to support low-carbon innovation and where we see room for improvement.

This paper adds to the literature by studying the impact of firms’ own technology and non-technology innovations as well as of innovation spillovers from vertically linked manufacturing and services industries on firms’ employment growth and skill upgrad-ing. We exploit unique representative samples of micro data for Spain and Slovenia for the period 1996 -2008. Our results show a substantial heterogeneity of innovation effects on employment and skill composition of labor. This implies that, first, the effects depend a lot on the specific structure of each economy, whereby results can vary substantially across industries that generate spillovers and across firms that are potential beneficiar-ies of the spillovers. And second, innovations in service industries do not seem to have a different spillover effect on employment and skill structure when compared to innova-tions in manufacturing industries.

Our recent work (Dechezlepretre, Martin & Mohnen, 2014, DMM) shows that clean innovation generates higher spillovers than dirty innovation. This could imply that shifting resources from dirty R&D to clean via a policy intervention can generate higher growth at th emacro level. However, the question arises what is driving this spillover gap? DMM explore explanations such as the suggestion that clean technologies are more general purpose or more original without much success. This leaves the explanation that spillovers – per innovation – are larger simply because clean technologies are a relatively un-explored field and there are decreasing returns to spillovers. Hence, what we measure is the higher marginal effect, however this advantage will dissipate once clean expands.

However, an implication of the presence of spillovers with decreasing returns is the possibility of multiple market equilibria some of which are inferior. Hence, if the economy is locked in an inferior equilibrium a policy intervention can lead to sustainable welfare improvement. In this note we develop a simple model that illustrates this.